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Worried about your State Pension? Now’s the time to act

If you’re worried about your financial situation in retirement, now’s the time to act. There are two things you can do today to improve your long-term financial situation and, hopefully, give you a comfortable retirement.

Fill in the gaps 

The first is to fill in any gaps in your National Insurance contribution (NIC) history. According to the government’s guidance, you need at least 10 qualifying years on your NIC record to get any State Pension, with at least 35 qualifying years required to get the full rate (£164.35 per week). If you have between 10 and 35 qualifying years, you will be entitled to a certain percentage of the full amount. Each qualifying year on your NIC record after 5 April 2016 adds around £4.70 a week to your new State Pension.

If you don’t have the full 35 qualifying years, the good news is you can buy extra NIC credits. People who reach State Pension age after April 2016 have until April 2023 to fill in gaps in their records between 2006 and 2016. If you do this today, it will cost you approximately £630 for each year acquired. However, in the new tax year (April 5), the cost will rise to £780.

So, if you are eligible to buy NICs to improve your National Insurance record, now is the time to do it.

Start saving and investing

The other strategy you can use today to improve your financial situation in retirement is to set up a SIPP. 

The great thing about SIPPs is that you can claim tax relief on contributions up to £40,000 a year. What’s more, anyone under the age of 75 can pay into a SIPP even if they aren’t earning money (non-earners can contribute up to £2,880 each tax year and still receive tax relief).

In my opinion, if you’re worried that your level of State Pension might not be enough to live off in retirement, opening a SIPP is the best thing you can do today.

According to a study compiled by asset manager Royal London, Britons need at least £260,000 to retire without money worries. If you can max out your SIPP contributions every year, you could hit this target in just five years. A contribution of £40,000 with a 20% government bonus equates to £50,000 of contributions every year. 

Over 15 years of saving, you only need to put away £14,000 a year. On top of this, the government will add 20% basic tax relief of £3,500 for an annual contribution of £17,500, building a total pension pot of £260,000 over a decade-and-a-half of saving. 

Both of these examples exclude any interest received on the money you put away. If you invest the money you’re saving in a low-cost fixed income fund with a dividend yield of around 3%, for example, you would only need to save £800 a month for 15 years to meet the target of £260,000. On top of your £800 a month contribution, the government would add 20% basic tax relief for a total annual contribution of £12,000. Invested in a low-risk bond fund yielding around 3% a year, this £1,000 a month contribution could help you retire quite comfortably. 

So what are you waiting for? If you’re worried about your State Pension, you can use either of the tactics above to improve your financial position today.

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Rupert Hargreaves owns no share mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.